Lawsuits Prove Costly To Cities

June 9, 1985|By Bob Kowalski, Staff Writer

A trend of successful lawsuits against local governments has left Palm Beach County cities with huge insurance costs that officials say will almost guarantee tax increases throughout the county this year.

In a situation that insurance analyst William Davis says has simply gotten ``out of hand,`` cities face staggering increases in the price they must pay to protect themselves against negligence lawsuits and protect their property.

``From everything I can see lately, it`s just going out of sight,`` said Bud Schmidt, risk manager for West Palm Beach. ``I see it getting worse.``

Among cities facing the increases are:

West Palm Beach, which anticipates having to add $900,000 to the fund it set up to reduce property and liability insurance costs eight years ago.

Boynton Beach, whose insurance costs have remained fairly stable in recent years, but are expected to as much as double this year.

Boca Raton, whose property and liability insurance costs increased by 700 percent, or $1.5 million, over the current year.

The insurance rates have risen dramatically as a reaction to a large number of court awards in the area that have been paid by municipal liability insurance carriers, said Donald Dresback, vice president of the Beacon Group, which handles Boca Raton`s insurance.

``What we`re seeing is an increasing number of lawsuits against municipalities,`` he said. ``We are a very litigous society as a whole. Seeing these kinds of situations develop, the insurance industry has become very concerned about it.``

Dresback said court awards against municipalities have been exceptionally high in Southeast Florida during recent years.

And Palm Beach County stands out in the region.

During the past two years, the amount of money awarded to individuals who filed personal injury lawsuits in the county was 44 percent higher than the national average, according to a study conducted by the Ohio-based Jury Verdict Research Inc.

Broward County awards were 25 percent above the national average and Dade County awards 32 percent above the national average, according to that study.

News of the dramatic increase in insurance costs, however, caught Boca Raton by surprise late last month, when that city`s current liability policy expired.

In a last-hour move, the Boca Raton City Council approved spending $1.7 million to renew the policy, which had only cost it $238,000 in the current year.

Over the last two years, Boca Raton had become more of a risk to insurance companies, and the rates reflected it, Dresback said.

The problem stemmed in part from the settlement of two lawsuits filed against the city by individuals who claimed they were injured because of the negligence of city employees.

The city`s insurance carriers agreed to pay $1.4 million in one case and $125,000 in the other. Both were the largest such insurance settlements the city had ever made, said Risk Manager Wayne Hamilton.

City Manager James Rutherford said the resulting insurance increases will have to be paid through increases in water and sewer rates and a property tax increase that may be as much as $3 per $1,000 of property valuation.

The city is also exploring the possibility of insuring itself to save on the overall insurance costs.

That`s what West Palm Beach did in 1977.

``We made that decision back in 1977 because the premiums were starting to skyrocket at that time,`` Schmidt said.

He estimated the city has so far saved $3 million to $4 million by operating its own liability and property insurance.

But now West Palm Beach is starting to feel the pains of being its own insurer. In the current year, West Palm Beach expects to pay at least $400,000 in claims, Schmidt said.

As a result, insurance advisers have recommended the city add $900,000 to the $2.2 million fund the city maintains to cover such claims.

And, to pay for that additional reserve, the city will likely increase taxes by what would amount to $50 a year for the owner of a $125,000 home with a $25,000 homestead exemption, Schmidt said.